Split Between Roth And Traditional 401 K
Camila Farah
For some investors this could prove to be a better option than the traditional 401 k contributions where deposits are made on a pre tax basis but are subject to taxes when the money is withdrawn.
By valencia patrice higuera updated. Once funds from any source are in the roth 401 k plan they cannot be moved into a. The thought process is that it allows me to take money out tax free during big spending y ears in retirement a nd the opposite. The bottom line.
Investors make traditional 401 k contributions before tax while roth savings occur. In a traditional 401 k you can start receiving distributions at age 59 1 2. Another slight difference between a roth 401 k and a traditional 401 k is your access to the money. Find out if you should consider making contributions that are split between a traditional 401 k and a roth 401 k.
I split my 401 k contributions 50 50 between a standard and a roth. Roth 401 k contributions allow you to contribute to your 401 k account on an after tax basis and pay no taxes on qualifying distributions when the money is withdrawn. Another advantage of the roth 401 k over a traditional 401 k is with unqualified distributions. Given that the timing of taxes is the most important thing when deciding between a traditional 401 k and a roth 401 k we can reduce this problem down to answering a single question.
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The central difference between a roth 401 k and traditional 401 k is the tax treatment of your contributions. The most well known employer sponsored retirement account is simply tabbed a 401 k but there are major differences between a pre tax or traditional 401 k and a roth 401 k both of which. The basic difference between a traditional and a roth 401 k is when you pay the taxes. With a roth 401 k you can start withdrawing money without penalty at the same age but you also must have held the account for five years.
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